Harsha regrets delay but vows swifter action against stock market Mafia

By Madushka Balasuriya

Economic Affairs Deputy Minister Dr. Harsha de Silva, once a vocal critic against the stock market mafia, on Friday expressed disappointment over the progress in punitive action but vowed justice would be meted out more swiftly under a permanent government post elections.

“Numerous allegations have been made of stockbrokers complicit with investors manipulating the market – pumpingshares, dumping them on various State institutions and so on. I am disappointed that we have still not made sufficient progress in making sure that we have done the expected job in dealing with those people who acted in ways that contravened the Securities and Exchange Commission’s Act,” said De Silva.

He was speaking as Chief Guest at the Certificate and Diploma Awards Ceremony 2015, organised by the Capital Market Education and Training (CMET) and the Securities and Exchange Commission of Sri Lanka on Friday.

“What happened to those who breached that Act? Where are the files, cases filed against these people?” asked the Deputy Minister, referring to the one of the more pronounced failures of the new regime in bring white collar criminals to justice, adding that it had allowed some to say that “none of these allegations were ever true”.

De Silva called on the SEC, the Colombo Stock Exchange and Attorney General’s Department to see how they could “speed up” this process, so as to “rebuild the confidence in the market”.

He assured that come 17 August, the UNF coalition would bring to book those who had so far evaded justice.

“If people think they don’t have a fair chance of making money in the capital market, then people will not invest in it. The allegation is that it is cornered by a few. Maybe a couple of hundred people, essentially, are the main players in this market,” warned De Silva, regarding the implications of a lack of faith in the market.
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Former SEC chief Godahewa emerges as a UPFA supporter

Nalaka Godahewa, Sri Lanka’s former high profile Securities and Exchange Commission (SEC) chairman, who once said he was not a political appointee, emerged this week – after a near 6-month absence from the public spotlight – as a supporter of the opposition United People’s Freedom Alliance (UPFA).

He was shown on a local television station on Tuesday night addressing a UPFA political meeting and criticising the controversial Central Bank Treasury bond issue. Some of the decisions taken by the former SEC chief, who was also a former Chairman of Sri Lanka Tourism, and the SEC board during the earlier administration – including the provision of funds to Namal Rajapaksa’s Tharunyata Hetak programme are presently under investigation by the Financial Crimes Investigation Department (FCID).

Earlier this year just before Dr. Godahewa resigned he told a newspaper that he was a non-political appointee. “There is no reason for the capital market regulator to hand over his resignation after an election. We do not engage in politics,” he was quoted as saying in the report.
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Access interested in more property business

Access Engineering (AEL) which bought Horizon Holdings Ventures (Pvt) Ltd and acquired 50 per cent in Horizon Holdings (Pvt) Ltd is eyeing more such investments, officials said.

“We are interested in the housing development sector and are interested in more such opportunities,” an AEL official said.
Horizon Holdings Ventures (Pvt.) Ltd (incorporated in June 2015) and Horizon Holdings (Pvt.) Ltd. (incorporated in March 2014) are in the business of developing their property located in Malabe, in 12.5 acres.

AEL has also focused on geographical diversification by creating its presence aboard, where AEL has taken the first step in the Pacific region.

The company undertook work for one of its Chinese partners at the biggest port in Papua New Guinea, Port Lae. AEL further plans to extend its international operations, however paying particular attention to the risks involved as the company hopes to partner with its principals. Currently the company is on the lookout for opportunities in East Africa and the Middle East with current strategic partners. (DEC)
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Softlogic Capital bounces strongly in 2014/15

Softlogic Capital PLC., incorporated as Capital Reach Holdings Ltd. by former Central Bank Governor Ajith Nivad Cabraal in April 2005 and subsequently acquired by the Softlogic Group which changed its name, has returned a superior performance in the year ended March 31, 2015 boosting revenue 20% to Rs 9.95 bn. and profit after tax 153% to Rs. 782 mn. from the previous year’s Rs. 309 mn.

But the highly capitalized company which concluded a 13 for 10 rights issue at Rs. 3.60 a share increasing its stated capital to Rs. 2.88 billion during the year under review has been unable to pay a dividend to its shareholders.

The company which controls the financial services business of the Softlogic Group is however upbeat about its future prospects given its estimation of the high potential of financial services in Sri Lanka’s economy.

Softlogic acquired Capital Reach in August 2010 and the shares of the company were listed on the Dirisavi board of the Colombo Stock Exchange in September 2011. This company is now the financial services sector holding company of the Softlogic group.

According to the Company’s recently released annual report Softlogic Capital’s portfolio of financial services comprised Softlogic Finance PLC., a licensed finance company, Asian Alliance Insurance PLC., an insurer licensed for life insurance by the Insurance Board of Sri Lanka and Asian Alliance General Insurance Ltd., licensed for general insurance by the Insurance Board as well as Softlogic Stockbrokers (Pvt) Ltd., a stock broking company licensed and operating on the CSE.

Softlogic Capital PLC is licensed by the Securities and Securities and Exchange Commission (SEC) as a market intermediary under the ‘investment manager’ category.

Softlogic’s investment strategy has focused on the most promising sectors likely to benefit from the country’s growth, and the financial services sector is one area that we see has huge potential based on the increasing per capita values, Mr. Ashok Pathirage, chairman of the company has said in Softlogic Capital’s annual report.

He noted that insurance expansion and penetration in the country is relatively low standing at 1.05% in 2014 with 0.45% penetration for life and 0.06% for general insurance. This compared with insurance penetration in the whole of Asia at 5.18% with 3.56 for life and 1.62% for general insurance.

"At Asian Alliance Insurance we are capitalizing on these prospects and are happy to report that life premiums for the company grew by 21% for 2014 and continued with the same momentum into the first quarter of 2015," Pathirage said.

"Asian Alliance Insurance PLC., is ranked fifth in the industry and has so far concentrated its business almost entirely on protection products. We see huge potential for life business and are planning on diversifying our product range."

He said that they had adopted a clear technology backec strategy in general insurance and is aiming at "providing unparalleled and unrivalled customer convenience." Their focus will be directed to the motor and health classes of insurance and will synergize with the Softlogic retail channel for distribution and Asiri Hospitals for healthcare.

"Our MOU with Apollo Hospitals, India that establishes the ‘Asian Health Alliance’ will ensure that our customers have the best choice of health care options whether local or overseas," Pathirage said.

Discussing Softlogic Finance, he said that they had coped with continued volatility related to impairment from leasing and hire purchase products and had made a timely change to focus on SME loan products where there is immense potential to grow based on speed of execution and delivery.

The company’s deposit base had increased by 30% to exceed Rs. 12 bn. which was the highest recorded increase in the Non-Banking Finance Institution (NBFI) sector, he said.

Pathirage also said they had transformed Softlogic Stockbrokers into "a winning proposition" on the back of favourable market conditions and the company had "stormed into third place" in the industry recording a turnover of Rs. 63.3 bn. and commanding a market share of 8.9%.

"With excellent client coverage and extensive research capabilities, the company has a strong focus on the foreign sector and sees enormous business potential tied to a strong based economy," Pathirage said.

He concluded by confidently stating that the group’s Financial Services Sector "is fully primed and in a great position to benefit from Sri Lanka’s growth.We have invested heavily in upgrading our teams, acquiring the infrastructure and building our brands which we also see as doing our part in developing our country’s future."

The company’s Managing Director, Mr. Ifthikar Ahamed, said that Asian Alliance insurance had delivered an extraordinary year recording gross written premiums of Rs. 4.9 bn., up 16% from a year earlier, while the bottom line saw an impressive profit of Rs. 705 mn. up 22% from the previous year’s profit of Rs. 576 mn.

Softlogic Finance had "stormed its way through impairment turbulence" and delivered a profit of Rs. 216 mn., up 31% from the previous year, he said. The total assets of the company was up 10% to Rs. 20 bn. from Rs. 18 bn. the previous year.

Ahamed reported that Softlogic Strockbrokers that was totally revamped had risen dramatically in their league recording a turnover of Rs. 225 mn for the year and a profit of Rs. 63 mn. against a turnover of Rs. 42 mn. and a loss of Rs. 13 mn. the previous year.

Their stock broking team has a keen focus on foreign business and one of the best research teams delivering outstanding works importantly institutional and high-net-worth clients, he said.

Softlogic Capital has a stated capital of Rs. 2.88 bn. and a reserve of Rs. 73.66 mn. It’s available for sale reserve is Rs. 31.5 mn. and retained earnings Rs. 509.9 mn. Total Assets ran at Rs. 32.85 bn. and total liabilities at Rs. 26.73 bn.

Earnings per share had grown to Rs. 0.72 from Rs. 0.20 the previous year for the group and Rs. 0.32 for the company from a loss of Rs. 0.36 per share the previous year.

Softlogic Holdings is the controlling shareholder of the company owning 73.11% though two accounts followed by ARC Capital (10.22%), Melstacorp (5.81%) Rosewood (Pvt.) Ltd., (5.41%) and WDNH Perera ( 1.49%).

The Softlogic share traded at a high of Rs. 8.80 and a low of Rs. 3.60 during the year under review against a trading range of Rs. 7.20 to Rs. 3.10 the previous year.

The director of the company are Messrs. A K Pathirage (Chairman), T M I Ahamed (Managing Director), R J Perera, WL P Wijewardena, Mr. A M Pasqual, Ms E Wickramaarachchi and Mr. H Premaratne.

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Amalgamation of DFCC and DFCC Vardhana from Oct. 1

The amalgamation between the DFCC Bank PLC and DFCC Vardhana Bank PLC (DVB) is expected to take effect from Oct. 1, 2015, or such other date as may be specified in the certificate of amalgamation issued in that regard by the Registrar General of Companies, the DFCC and DFCC Vardhana said in separate Stock Exchange filings on Friday.

The shareholders of DVB (other than DFCC) shall be paid a consideration of Rs. 52 for every DVB share they hold in lieu of their holding in DVB as at the date of the amalgamation.

The 281,823,005 shares of DVB held by DFCC would be cancelled in terms of the relevant provisions of the Companies Act upon the amalgamation without any payment or other consideration.

Ernst & Young Transaction Advisory Services (Private) Ltd. has issued an Independent Advisors’ Report on July 3 in respect of the payment to minority shareholders.

DVB which had a commercial banking licence handled the commercial banking business of the DFCC group.

The two banks had made disclosures in this regard on May 15 this year and their two boards have approved the amalgamation proposal subject to obtaining necessary shareholder and regulatory approvals.

The DFCC Bank will hold an EGM on Aug. 28 at King’s Court of the Cinnamon Lakeside Hotel to seek the necessary shareholder approval while DFCC Vardhana will hold an EGM the same day at the head office of the DFCC Bank for the same purpose.

The filing by both entities said that the DFCC Bank PLC will be the surviving entity upon completion of the amalgamation.

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Debt-wracked Madulsima plans cash infusion of Rs. 1.4 bn.

Five for one rights issue will settle related shareholders with shares

Madulsima Plantations PLC, controlled/influenced by Harry Jayewardena related companies, has announced the issue of 145 million new ordinary shares by way of a five for one rights issue priced at Rs. 9.50 per share.

The company has said in a circular to shareholders that if the rights issue is fully subscribed, the company’s stated capital would increase from Rs. 290 mn. to approximately Rs. 1.67 bn., increasing by approximately Rs. 1.38 bn.

The company intends utilizing approximately Rs. 1.38 bn. of the funds raised by the rights issue to fully settle loans due to two related companies, Melstacorp. Ltd. and Stassen Exports Pvt. Ltd. which are two related companies, and part settle an HNB overdraft.

The circular has said that the loans due to Melstacorp and Stassen Exports are loans due on demand. Furthermore, these lenders are the majority shareholders of Madulsima who are willing to convert their loans into equity. The remaining borrowings due on a secured

HNB permanent overdraft is not yet due for settlement but Madulsima expects to settle Rs. 55 mn. of an outstanding of Rs. 294 mn.

Considering that the two related companies have expressed their willingness to subscribe fully to their rights entitlement and to apply for additional shares to the extent required to convert the outstanding loans into equity, the directors are assured that the total fund requirement will be met, the circular indicated.

Madulsima carries substantial debt and in the company’s last annual report for 2014 its auditors, without qualifying their opinion on the accounts, drew attention to the fact that the company continues to incur losses financed by related companies. In the last year under review the company incurred a net loss of Rs. 277.7 mn., up from Rs. 219.6 mn. a year earlier. As at that date, the company’s current liabilities exceeded its current assets by Rs. 1.79 bn. and there are uncertainties of its status as a going concern.

In 2014, a loss of Rs. 9.58 per share, up from a loss of Rs. 7.57 per share a year earlier, had been incurred. The directors have said that once debts are settled, Madulsima which has paid no dividends to shareholders but paid management fees to its controlling shareholder for 11 years, will benefit from reduced finance costs of approximately Rs. 165 mn. a year amounting to a saving of approximately Rs. 30 per kilo of made tea.

In the current financial year the saving would be approximately Rs. 80 mn.

These savings of interest cost together with the improvements in productivity, agricultural practices and factory development has led the directors to believe that once the lion’s share of outstanding debt is reduced, the financial performance of the company would improve together with its ability to continue as a going concern.

The Madulsima share closed at Rs. 13.20 last February, Rs. 11.40 in March, Rs. 11.80 in April and Rs. 10.80 in May.

The company has summoned an Extraordinary General Meeting on August 3 to seek shareholder approval for special resolutions enabling the floating of the rights issue.

The Madulsima directors are Messrs. D.H. S. Jayawardena, N.M.A. Gaffar, Lalith Obeyesekere, A Shakthevale and D.S.K. Amarasekera.

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Sri Lanka's UNP wants all SOEs under one holding company

ECONOMYNEXT - Sri Lanka's United National Party said it will place all state owned enterprises under a holding company, whose trustees will be appointed with the agreement of political parties and civil society.

"The government owns the biggest commercial enterprises in the country and this ownership is maintained on behalf of the people," the UNP said in its manifesto for the August 17 general elections.

"Unfortunately, for the past 50 years these enterprises have not been managed properly and therefore suffered huge losses.

"As a solution all state enterprises will be placed under holding company."

Both Malaysia and Singapore have holding companies to own and manage enterprises and also sovereign wealth funds.

The document said trustees to the asset holding company would be appointed after consultations with political parties and civil society organization.

State enterprises where the elected ruling class and bureaucrats plays around and do business with taxes extracted from the people. They make large losses frequently indicating that the gamble with people money is lost.

Some SOEs which benefit from the coercive power of the state also have monopoly powers restricting the rights of citizens to engage in similar activities like the Imperial Mercantilist Dutch East India Company and the British East India Company did.

SOEs also have looser financial regulations or 'financial independence' than government departments, allowing the elected ruling class to mis-use them more easily.

As a result the existence of state enterprises have become one of the key causes of corruption in the country.

The UNP which led the way in privatization sharply reducing opportunities for rulers and bureaucrats to steal and mis-use people's money in the 1980s now have 'policy fright' according to some critics.

The UNP said it will also create a pubic wealth trust to manage two retirement funds of private sector workers if it comes to power after August elections.

Both agencies will come under the scrutiny of parliament.